Question
In: Accounting
Feauto Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its...
Feauto Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, I63E and E76I, about which it has provided the following data:
| I63E | E76I | |||||
| Direct materials per unit | $ | 22.20 | $ | 66.60 | ||
| Direct labor per unit | $ | 17.50 | $ | 52.50 | ||
| Direct labor-hours per unit | 0.50 | 1.50 | ||||
| Annual production (units) | 84,000 | 28,000 | ||||
The company's estimated total manufacturing overhead for the year
is $3,141,600 and the company's estimated total direct labor-hours
for the year is 84,000.
The company is considering using a form of activity-based costing
to determine its unit product costs for external reports. Data for
this proposed activity-based costing system appear below:
| Activities and Activity Measures | Estimated Overhead Cost |
||
| Assembling products (DLHs) | $ | 2,100,000 | |
| Preparing batches (batches) | 186,000 | ||
| Product support (product variations) | 855,600 | ||
| Total | $ | 3,141,600 | |
| Expected Activity | |||
| I63E | E76I | Total | |
| DLHs | 42,000 | 42,000 | 84,000 |
| Batches | 1,130 | 630 | 1,760 |
| Product variations | 2,260 | 1,260 | 3,520 |
The manufacturing overhead that would be applied to a unit of product I63E under the company's traditional costing system is closest to:
Multiple Choice
-
$37.40
-
$56.10
-
$37.40
-
$18.70
Solutions
Expert Solution
Solution OPTION A ( $ 37.40) is the correct answer
Computation of manufacturing overhead rate based on labor hours
Total estimated manufacturing overhead = $3,141,600
Estimated total direct labor-hours for the year = 84000 hrs
Traditional costing overhead rate based on labor hours = (Total manufacturing overhead / Total direct labor hours )
= $ 3,141,600 / 84000 hrs
= $ 37.40
The manufacturing overhead that would be applied to a unit of product I63E under the company's traditional costing system = $ 37.40
From the above computation we can say that OPTION A ( $ 37.40 ) based on traditional costing method satisfies the given requirement in the question where as remaining OPTIONS B, C, D do not satisfy the requirement in the question and they are incorrect.
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ekkarill92 answered 2 years agoRelated Solutions
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